The R&D Tax Credit: A 2017 Year in Review and Impacts of Tax Reform

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2017 brought some of the most momentous changes in the tax treatment of research and development costs and related credit in recent memory. There have been sea changes in Law, IRS approaches to examining credits, and other significant developments from the courts and the states.

Please join us for our upcoming Webcast, where KPMG LLP (KPMG) professionals will discuss a variety of topics, including:

The Tax Recovery and Jobs Act (the “Act”)

The Act enacted sweeping changes to the entire tax system with significant changes impacting R&D including:

Reduction in the maximum corporate tax rate from 35% to 21% that has increased the net value of the credit and other impacts to section 280C(c)(3) elections analyses

Repeal of the corporate alternate minimum tax and periodic refundability of corporate AMT credit carryforwards that will significantly affect the ability to use the credit. In addition, itemized deductions are being limited making fewer individuals potentially subject to individual AMT

The enactment of the Base Erosion Anti-Abuse Tax (“BEAT”) that may add significant complexity to the analysis of the ability to use credits

Capitalization and amortization of R&E expenses (including software development costs), which will be required after 2021

The R&D credit calculation rules, which have not changed, but there have been significant changes to the orphan drug credit (“ODC”) calculation rules

Legislative update

IRS Examinations and Guidance

In addition, there have been several significant developments on the IRS examination front, including:

The Large & Midsize Business and International Directive regarding R&D and ASC 730, which provide significant safe harbors. Many taxpayers will attempt to apply the directive for the first time for their 2017 tax returns

Pilot model / prototype costs that are often being examined

Miscellaneous guidance that has been issued regarding the R&D credit and the ODC

Continuing disputes that are occurring regarding the definition of internal-use software and the appropriate standards to apply

R&D in the Courts Update

State and Local R&D Updates

Technology Trends

Please join KPMG’s RCS professionals as they provide an overview of the research tax credit, industry trends, and leading practices that companies should implement.